Press Releases

Fraud isn’t funny

Having reported on seafood fraud extensively in the past, I attended Monday’s International Boston Seafood Show conference, “Seafood Substitution: Efforts and Strategies to Eliminate Mislabeling and Fraud from the Marketplace,” with great interest.

A diverse and experienced panel of speakers was lined up, including a U.S. Food and Drug Administration (FDA) representative, a former fisheries law enforcement officer, the secretary of the Better Seafood Bureau, a federal seafood-inspection officer and an executive from a DNA-identification laboratory that tests suspicious seafood. Everyone brought a unique perspective and expertise that more people in the industry need to hear.
But panelist Morton Nussbaum, chairman of International Marketing Specialists in West Newton, Mass., was his usual show-stealing self. Nussbaum has relayed several stories to me about his experiences with fraud, both as a veteran seafood importer and as a restaurant lover. He’s a Boston guy, but he also spends a lot of time in Florida, a hotbed for species substitution; it is there that cheaper fish masquerade as regional favorites grouper and snapper. Nussbaum can spin an amusing tale about grouper and pompano dishes that contain neither grouper nor pompano.

On Monday he told another fish story, one with a frustrating ending. He wanted to try a new restaurant near his office last fall and was convinced that the USD 19.99 fried haddock entrée he eventually ordered wasn’t haddock. He’s no fool, and instantly knew it was swai, or pangasius, the catfish species farmed predominantly in Vietnam. If it was swai, as he believed, it wasn’t worth that price tag, seeing how swai fillets wholesale for only a few bucks while haddock fillets in and around Boston can cost a restaurant USD 8 to USD 10 (or more) per pound, if it’s sourced from a reputable, local dealer.
“Of the 4 million pounds of pangasius imported into the United States each week, can anybody here tell me where it goes? Because nobody calls it pangasius in a restaurant,” said Nussbaum.

So he called the Massachusetts Attorney General’s office to complain and report what he believed was a crime. Officially, it’s known as misbranding, defined simply by the FDA as a food item “offered for sale under the name of another food.” Unfortunately, he was told that they do not send officers out into the field for such matters — no funding for it. The AG office, he discovered, only offers consumer mediation where the restaurant operator would also state his or her case. Best-case scenario, Nussbaum gets his USD 19.99 back. I’m sure the time and effort that would take is worth more than 20 bucks to him.
This type of enforcement effort, or lack thereof, is just not cutting it. FDA isn’t sending anyone to restaurants either.

With all the scrutiny on fishermen and importers, it’d be tough to convince them that they’re the biggest part of the problem. Andrew Cohen, principal at ARC Consulting and a former special agent-in-charge at the National Oceanic and Atmospheric Administration, said at the conference that the vast majority of the pangasius that enters the U.S. market arrives with accurate paperwork. (Coincidentally, Cohen’s story about busting up an Columbia River sturgeon caviar operation — in a motel — back when he was a fisheries law enforcement officer in Pacific Northwest, was astounding.)

A lot can happen to seafood and its labels along the supply chain, but the risks and consequences of switching species in bulk for an importer versus those facing a restaurant operator are not comparable. One faces millions of dollars in fines and potential jail time while the other may or may not get bad press that’s quickly forgotten by the public.
Are regulatory and enforcement agencies concerned only with crimes that involve millions of dollars and not the millions of daily crimes that involve a few bucks here and there? Is there really a difference?

Nussbaum’s experience led him to come to one simple but sad conclusion: “If anybody’s looking to substitute swai for another species, the best place to experiment is in the Commonwealth of Massachusetts,” he said with deadpan delivery.

The room burst out in laughter, as did I — it was a classic Morty zinger. But it’s really not funny. Nussbaum closed by saying he’s looking forward to next year’s inevitable discussion on fraud. The cheat goes on.

Mexican and Chinese shrimp buyers paying high prices, flooding in Asia, and European buyers hungry for Ecuadorian shrimp are just some of the issues facing U.S. buyers.

In general, the U.S. shrimp market is in a steady, but quiet trading mode, said Ernie Wayland, vice president with U.S. importer International Marketing Specialists. “Inventories are considered light, particularly in medium-to-small white commodity and value-added shrimp.”

White shrimp prices are up 32 percent over a comparable period in 2010. U.S. shrimp importers are still finding it difficult to source product overseas, as replacement prices are just too high and speculative, he told IntraFish.

“Take your pick from a basket of problems facing us and see if you can calculate the direction of the shrimp market over the near term,” said Wayland.

One issue is increased buying power from other countries.

"Mexico has been buying strong in Central and South America for almost one year. When it appeared that they were going to lose a major portion of their farmed crop in Sinaloa and Sonora last June and July, they began an aggressive buying campaign to source other Latin producers,” he said. “They are essentially buying fresh product and trucking it to Mexico City. From Ecuador, they would have to be sending it by reefer in a frozen state. I have been told that they have been paying better prices than U.S. buyers but, frankly, do not have any reliable numbers.”

Also Chinese buyers have "set up shop" in Guayaquil, Ecuador and have been making similar purchases of head-on and headless shrimp from Ecuador, he said.

Latin American production

As has been the case for the last quarter, there has been little production from Latin America coming to the United States, said Wayland.

Mexico and Central American producers have had little production during this period and any production has been going to Europe in head-on form. “Ecuadorian prices are still very high in relation to the U.S. market. It is widely reported that European buyers are sitting on low inventories of head-on shrimp and are active buyers. “

The weak dollar -- Ecuador is pegged to the U.S. dollar -- gives the European buyers a big competitive advantage over U.S. buyers, he said.

Also, it is reported that Ecuador packers are selling directly to U.S. end users, bypassing the importers.

“Some Ecuadorian packers have been selling direct to end users -- supermarket chains and foodservice operators -- for a number of years,” he told IntraFish . “The volume is not great but it is a departure from the normal sales channels. It seems that everyone is looking for a competitive edge in today’s tough environment.”

Many U.S. importers of Latin American shrimp expect the market to decline, especially on middle-to-small size farmed white shrimp when the new crops start arriving in May to June, he said. “The big question is not so much if, but when and how much.”

Thailand to rise to challenge?

In Thailand, there have been recent reports that the flooding in southern Thailand will impact this year’s shrimp crop. The Thai Frozen Foods Association has publicly reported that 50,000 metric tons to 60,000 metric tons of shrimp were lost.

This quantity represents about 8 percent to 10 percent of the country’s annual shrimp imports.

Not only have shrimp farms been impacted, but there has also been substantial damage to the country’s transportation infrastructure.

“It is difficult to predict how this will impact supplies and prices. But, in the past, during times of political and industry strife, Thai producers have shown an amazing ability to rise up to the occasion and crank up their production output,” said Wayland. “We can expect a strong effort from Thai farmers and packers to make up for the production shortfall resulting from the flooding. We should also expect some delay in their peak harvest to early summer.”

Indonesia has also experienced some damage to their shrimp ponds due to heavy rains which continue at this time.

“Reports indicate that raw material is still very limited as farmers delay their harvests due to high water levels in the ponds,” said Wayland. “There have been some increased buying interest from U.S. importers but very few transactions have been concluded due to the high prices.”

Further, Japanese buyers have been more active since the earthquake and tsunami and this activity has pushed prices up, he said. “Finally, the U.S. dollar is weaker further complicating the export prices.”

In Vietnam, the farmers have experienced unseasonably cold and wet weather which has caused some shrimp mortality.

“These factors have caused forecasts for the main production season to be extended to the end of July to the beginning of September for black tiger, and to June and July for white shrimp,” said Wayland. “Very few orders have been concluded with U.S. buyers, in recent weeks. Rising fuel costs are pushing production, processing and transportation costs higher causing farmers and packers to predict a break-even profit at best this year.”

U.S. buyers

All of these factors create a tough environment for U.S.-based buyers.

“Replacement also depends on individual assessments of when new season harvests will be available and the probable impact on U.S. market prices when this new product enters the market. In prior years, this assessment has been more predictable,” said Wayland. “This year, global economic forces -- coupled with unseasonal weather in the Asian growing areas -- have made product and price assessments considerably more difficult.”

For instance, the weak and declining U.S. dollar, skyrocketing energy costs, unseasonal rain and flooding in Thailand, Indonesia and Vietnam, and escalating basic commodity and food prices, should all impact the market to push prices higher and quite possibly keep prices high for the foreseeable future, he said.

Market impact?

On the market side, a case can be made that these same issues will have a major impact on consumer demand for shrimp, consumed at home and away from home, said Wayland. “With prices for white shrimp up 32 percent over the last year, one can argue that the market will be under pressure once new season supplies begin to hit the market and that some downside adjustment should be expected.”

However, U.S. inventories are unseasonably low, he said.

“Reports from major cold storage companies confirm that shrimp holdings are much lower than a year ago and that product arrivals are not staying long in the warehouses, but moving out rather quickly,” he said. “The big question is how long will it take to fill the holes in most inventory positions? Market prices generally move up or down in relation to the amount of inventory on hand or anticipated to arrive.”

Market reports from agents on the ground in the producing areas confirm rising production costs. They also point to some delayed harvests due to climate issues, especially in Asia.

There are indications that the peak season for Asian production will be pushed back into mid-summer. “If there is no buying or window of opportunity in May and June, then shrimp importers will all be looking at July and August as the period they will have to step in and buy, not only for their spot inventory needs, but for the substantial quantities needed by the retail and foodservice segments.”

If this projection is rational, then any major, long term decline in prices may be delayed until the fall months, if then, he said. “A sharp fall back on energy costs during this period could have a positive impact on the market demand, but all indications are pointing towards even higher fuel prices ahead of us.”

Persistence, enforcement vital in fraud fight

Eliminating the behaviors that lead to cheating, and influencing federal and state officials to enforce the rules, are vital in the fight against economic fraud, a panel of five industry experts emphasized at the "Truth in Tare" seminar during the International Boston Seafood Show on Sunday.

There's no question that fraud is one of the biggest challenges facing the U.S. seafood industry. But finding solutions has proven difficult. The adulteration of seafood species names, actual weights and country of origin are the three most common forms of fraud.

"I use the Judge Judy method, which is "Don't lie to me." How many ounces are there in a pound - 13, 14, 15? No, it's 16. There's no variation. There's no plus, no minus. I want 16 ounces," said Morton Nussbaum, CEO and chairman of International Marketing Specialists (IMS) in West Newton, Mass. "Either you're a crook, or you're not a crook."

Nussbaum spoke of one instance where a major club-store chain put in a purchase order with IMS for shrimp packed at 85 percent net weight.

Panelists insisted that refusing to engage in practices that lead to fraud, such as online bidding, is one potential solution.

"We don't bid," said Jose Thomas, founder of Choice Canning Co. in Edison, N.J. "I hope the responsible people in the industry, especially the retailers, foodservice operators and wholesalers - stop this online bidding. If that happens, things will change."

"At a Dutch-style auction, you start at a price and go down. So you're bidding against yourself - against God knows who," said Nussbaum. "It's a form of entrapment that only favors the buyer."

The lack of enforcement is also a major challenge facing the fight against fraud.

"The federal government is basically broken. There are four different agencies responsible for economic fraud, and none of them talk to each other. They admit that they don't have enough money in their budgets. They're basically telling [the cheaters], "Have a good time" said Ross Paasche of Seatrade International, who's also the president of the American Scallop Association (ASA). "The federal government has basically waved the white flag, and it's disheartening."

Last November, the ASA stepped up its efforts to fight fraud by pledging to accurately label all scallop products - fresh and frozen, domestic and foreign - and establishing a system of self-policing its 18 members.

Also participating in seminar were Lisa Weddig of the National Fisheries Institute and William Gergits of Therion International LLC. James Wright, associate editor of SeaFood Business magazine, moderated the question-and-answer discussion.

DelicaSea Line Adds CrabMeat

Ben DiPietro - Intrafish

Published -
February 10. 2010

Mostly known for its shrimp products, International Marketing Specialists is
set to launch a new line of crab products under its DelicaSea brand.

With the opening of a new sales office in southern California,
Boston-based IMS is ready to expand its DelicaSea offerings and position the
brand as the main one in its sales line.

The first crab product to come out will be a pasteurized refrigerated product
using crabs caught in Indonesia, Martinez-Malo told IntraFish, and
the products will be featured at the Boston seafood show in March.

“We have just finalized all of our graphic and can designs; it’s a very
appealing design. We have done all the consumer analysis, consumer trends
and personalities as to why they would select our can,” said Martinez-Malo.

“We have certain trigger colors, certain aspects of our design that attract
consumers to understand there is a gourmet quality product inside of this
can. We will be launching Indonesia product; our grades will range from
colossal to jumbo lump, to super lump, lump, special and claw. We’ll be
launching six categories, that will be our initial benchmark.”

$50 million goal

The goal in 2010 is to raise crabmeat sales 20 percent, which would bring in
between $20 million (€14.6 million) and $30 million (€22 million) in new
business, said Martinez-Malo. “Once were full launch mode from all sources
of supply, the potential is there to within the company’s existing
portfolio, and the portfolios in development, for the company to hit $50
million (€36.6 million) on crabmeat within two years,” he said.

Along with Indonesia, the company is buying crab from Philippines, Thailand
and China, but Martinez-Malo says IMS is steering clear of crab caught in
Vietnam because of quality concerns. “There’s been a lot of
chlorophenocol-related rejections by the FDA, both on the import level as
well as on the domestic level,” he said.

“The Philippines is all wild-caught, and the Philippine crabmeat has a
tendency to be sweeter. That is attributable to the fisheries; they don’t
travel the distances with the crabs, the fishery is much closer to the
points of packing. We go out of Indonesia because of the experience in the
industry with the packers, and the packers’ ability to adhere to our
upgraded product specifications.”

crabmeat PHOTO: IMS

Those upgraded specifications are one reason Martinez-Malo said he feels the
DelicaSea label has a chance to grab market share in the U.S. retail and
foodservice markets. One advantage says it IMS has is it has a line into the
crabmeat industry already, as it services certain market sectors.

“And they are users of crabmeats that use the species and the formats the
company will be developing,” said Martinez-Malo. “The differentiation
between the DelicaSea label and the others, this is part of the strategy, is
our product will have a higher specification and quality assurance guideline
and supervision than many of the existing companies.

“The DelicaSea brand will carry the banner, will carry the signature label of
the company. We will be absorbing some specific market sectors, we’re able
to do some co-branding and some co-marketing with the label,” he said.
“We’ll be using the company’s brand equity of the DelicaSea and how well
it’s respected in the U.S. industry as one of our hook lines to promote the
products, so they can recognize the value.”

A major staff training program is under way, to make sure all sales people are
experts in crabmeat and the various products and product categories.

“Making all of our sales staff experts in the handling of crabmeat, the
marketing, understanding the features and benefits, as well as being able to
transfer the information to the clients and help their sales staffs
understand how to sell crabmeat better, and allow our customers to enjoy
better market penetration have a better market position through strong
product knowledge,” said Martinez-Malo.

“Product knowledge is key in selling crabmeat: understanding the grades,
understanding the price applications, understanding the customers menu
structure, and how to approach the market presentation based on what the
customer needs really are and what their desired menu application is trying
to achieve.”